The growth rate of output in May has increased (after cleaning of seasonal factors) to points and as a result has reached the maximum of the previous crisis months and the level of RUSSIAN ECONOMY IN trends and outlooks the average indictor of the first half of 2008. In I quarter of 2010 the growth was 10 points, in the IV quarter 2009 - 9 points. Planned output growth have also reached the crisis maximum.

In May 2010 they caught up with the plans of August In May, prices of enterprises continued to increase. The rate of their change since the beginning of the year were within the range of 9 + 13 points, which definitely indicated the confidence of producers in their market power (see Fig. 16). Within the twelve months out of twenty months preceding the crisis, companies have been forced to reduce prices.

At the end of the II quarter low demand for industrial products has become a matter of concern to enterprises, forcing them to amend prices and HR policies, but has not prevented the growth of output and control over stocks of finished products.

In June, the growth in demand for industrial products was sustained, but the rate of its growth has remained very low, little different from zero. Therefore, in the middle of the year there was only a pause in falling sales. The total growth of demand for industrial products has not yet begun. The situation of "neither growth nor decline" was recorded in October surveys, when the difference in changes of demand for the first time during the current crisis was close to zero. As a result, for the third consecutive quarter there was no substantial progress in the dynamics of sales in the industries.

This uncertainty provoked nervousness in the enterprises assessment of the current sales.

Before July 2009 the share of "normal” assessments for about 8 months remained at the bottom of the crisis (satisfaction was at the stable level of 23 per cent), and then went up to the next level of 35 per cent. Then the uncertainty in the industries became to vary: the satisfaction jumped from 33 to 54 per cent at near-zero growth in demand (see Fig. 7). Producers seemed to be trying to figure out, what is happening in the economy and what volumes of demand are adequate to the situation. As the result, in the II quarter of 2010 the enterprises of ferrous metallurgy (74 per cent were satisfied with the sales), chemical and petrochemical enterprises (71 per cent),and food industry (64 per cent) were able better to adapt to the industrial demand dynamics.

Dynamics of stocks of finished goods assessments in the first half of 2010 had a steady positive trend, demonstrating a good management of supplies in this crisis. Only within six months (from November 2008 to April 2009) industries had the highest excessive reserves at their warehouses. In May 2009 the balance of assessments has returned to the level of 20042005, and from December 2009, it was declining gradually to the indicators of 2006-2007.

The problem of stocks of finished goods, so acute in the Russian industries in the 90 years of the twentieth century, was the most easily solvable in this crisis.

According to the surveys, output growth in June reached the next crisis record and was closer to the values of this index began in 2008 (see Fig. 17). Therefore, the industries in September 2009 have demonstrated quite good and stable production growth in the time of crisis.

Output plans in the first half of 2010 maintained high and relatively steady optimism.

In June the companies had again decided to use price leverage to promote sales of their products and suspended the growth of wholesale prices, which was in effect from the beginning of the year. Monthly rate of price growth has declined from the crisis peak to almost zero (see Fig. 16). There was no such a significant pricing adjustment since December 2008. And the price plans of enterprises since March stabilized at the level of actual growth rate of January - May, indicating that the June adjustment was unplanned and demonstrating the desire to restore the growth of prices in the coming months.

Section 4.

The Real Sector of the Economy In June, industries have continued recruitment, which began in March. The growth rate of employment within all those months was low, but stable. Businesses were accurate in labor market policies, selecting, apparently, the most skilled workers. Nevertheless, their forecasts for the next six months fell down to a minimum. According to the estimates, in 2010 the companies were more focused in planning its staffing policies on the forecasts of demand, rather than on the output plans. In 2009 the situation was reverse. In 2005-2007 hiring of employees was also dependant on the demand.

The ability of businesses to pay the loans was in the middle of 2010 81 per cent (among those who had credits), but remained virtually unchanged for two months. The worst indicator (monitoring began, unfortunately, only in March 2009) was recorded in April 2009. Afterwards only 50 per cent of the companies, who took loans, recognized their ability to pay its debts. Other 50 per cent critically assessed their ability as insufficient. This distribution of ratings in responses to such a delicate and painful issue demonstrates, in our opinion, the reliable answers of enterprises. The highest inability of businesses to service their loans was recorded in April - June 2010 in construction materials industry. It was noted by 26 per cent of businesses with loans. In second place was mechanical engineering - 22 per cent, in the third place - LESPROM (18 per cent). Only steel mills were confident in their credit ability for per cent.

4.2.3. Third quarter: there is no more optimism The lack of positive trends in the sales dynamics has misleaded the businesses, started to affect the forecasts and to restrain output growth at the beginning of the second half of the year.

The intensity of demand growth in July did not experienced significant changes and remained almost at the zero level: there was neither particular growth, nor significant reduction of sales in the industry. Similar dynamics of sales was recorded in the surveys in February 2010. The similar Fig. was observed at the baseline data (before cleaning from seasonal factors), although in this case the absolute levels were somewhat higher. But the conclusion was the same: no changes in the dynamics of demand for industrial products were observed in the first half of the year.

This situation has forced the companies to change their estimates of demand again. As a result, in July they were improved by 13 points (in June, deteriorating by 17 points was noted), and got increased again - the share of answers "below normal" again proved to be in the minority. This indicator was highly volatile from the beginning of 2010, which indicated the absence of estimates of the current situation. Confusion in the state industrial statistics resulted in further aggravating of the situation. The lack of positive trends in demand has brought pressure on optimistic forecasts of businesses. In July, the expected changes in demand were the most pessimistic since the beginning of 2010.

In July, the surplus stocks of finished goods were expired in the industries in general – i.e., the share of responses "below normal" caught up with the share of replies "above normal". A similar situation was quite rare for post-default period: companies still prefer to have a small surplus of finished goods inventory to meet unexpected orders. In mid-2010 the share of replies "above normal" has fallen to historic minimum, while the share of responses "normal" has reached the historic maximum (see Fig. 18). This was the result of intense reduction of volumes (not to be confused with estimates!) of stocks in the II quarter. In the III quarter the RUSSIAN ECONOMY IN trends and outlooks industries planned, despite the forecasts of Ministry of Economic Development, to continue to reduce their stocks, and most intensively in 2010.

Low demand has begun to hinder the growth of production in the Russian industry. In the III quarter it was mentioned as an obstacle to growth in output, which increased by 9 points and reached 61 per cent. In the second place remained a lack of operating assets, but the prevalence of this interference was reduced to 30 per cent, which was an absolute (!) minimum within total monitored period since 1993.The Fig. is complemented with 5 per cent share of responses on the lack of credits, which was recorded in the surveys of two consecutive quarters. In the third place there was the lack of personnel (a quarter of enterprises suffered from this factor over the past two quarters) indicated not so much about the current issues of industry, but demonstrated the high readiness of enterprises to respond on increased demand and that the businesses remember the staffing problems of pre-crisis years.

After five months of stable and relatively high (in terms of crisis indicators) increase of selling prices, in June - July the businesses attempted to activate demand for their products due to more moderate increase in prices. If in January - May 2010 prices were rising at the rate of 11 balance points, in June – July that rate fell down to 4 b.p. However, such an adjustment of price policy was not scheduled. This is reflected in the price plans of enterprises, who have maintained a high anticipated rate of price growth up to July.

HR policy of enterprises in the middle of 2010 was influenced by two opposing trends. On the one hand, the lack of growth in demand forced the companies to be cautious in hiring employees. On the other hand, the lack of growth in demand from month to month increases the probability of its recovery in the next month. The latter increased the industries readiness for the post-crisis breakthrough and urged them to accumulate resources for it (even more so - reserves), and in the first place - the most deficient ones. And in the pre-crisis years it was the personnel. As a result, at the beginning of the III quarter the businesses returned to the same (as in March - May) rates of increase of the number of employees (see Fig. 8).

Assessments of the current number of employees have confirmed the preparation of the businesses to increase production. In the III quarter due to anticipated changes in demand, the staff shortage in the industries has increased. For the first time the shortage (i.e., prevalence of "less than adequate" estimates) was recorded in the surveys of the II quarter of 2010. Meanwhile, there was no deficit in production capacity, typical for post-crisis output growth. The balance of capacity ratings was positive, i.e., responses of "more than enough" were dominating. In the III quarter capacity prevalence has even increased as compared with the II quarter of 2010, when hopes for an early exit from the crisis were stronger.

The struggle for deficient personnel forced the businesses to increase wages. In the III quarter of 2010, a normal (though, according to business leaders) salary level was achieved in 56 per cent of the plants (see Fig. 9). In the pre-crisis 2007, that indicator rose to 60 per cent, and during the crisis in 2009 it fell down to 37 per cent. In mid-2010 the estimates of the ratio of wages of employees has reached the pre-crisis level. It should be noted, that this is the estimated, rather than the absolute range of salaries.

In August, the Russian industries maintained the same rate of growth of output, prices, employment, but the deterioration in estimates of demand, sales, production planning and recruitment, prudent inventory management policy were demonstrating the growing uncertainty of enterprises.

Decreased demand growth in August did not surpass the zero level, which was sustained since February 2010, i.e., the businesses did not register demand growth for seven months Section 4.

The Real Sector of the Economy and got used to this situation. The latter urged businesses to make more realistic assessment of sales - in August 63 per cent of businesses estimated their sales volumes as normal (growth in comparison with July by 13 points). However, estimates of sales index remained the most volatile in 2010. Demand forecasts in August also demonstrated negative dynamics. Both, the original, and cleared from seasonal factors estimates indicated willingness of the industries to zero growth in demand in autumn 2010, whereas in the I quarter of the year the businesses expected sales growth at the rate of +10... +13 balance points. Therefore, the optimism of the beginning of the year gradually diminished. In August, for the second consecutive month, the businesses reported an absence of surplus stocks of finished products in the warehouses in the industries in general. The balance of assessments stopped in the negative zone, indicating that the growing prevalence estimates of "below standards" over assessments "above normal" and the uncertainty in demand growth.

Output growth in August, according to the businesses, survived and did not change as compared with previous months in 2010. However, in the autumn months the companies planned to move to a less intensive output growth. Estimated production growth decreased to the annual minimum, according to both, the initial and cleared from the seasonal factors indicators.

In August, the industries continued to hold their prices growth at one of the lowest level in 2010, and in general have not yet succumbed to inflationary fever of abnormally hot July - August. But the food industry, which to increase prices in May - July, in August has reported on the most intensive growth in 2010.

In August the industries returned to the former (+ 5points, as in March - May ),rate of employees’ recruitment. Therefore, the businesses continued the recruitment, even in the absence of growth in demand and with a deterioration of forecasts for output and sales. But in the next few months these positive processes were expected to stop. Plans to change employment rate in September - October have been reduced to the annual minimum and reached zero - the industries planned to stop recruitment.